What Are The Steps Required To Setup And Transact Consigned Orders in Purchasing ? [ID 428100.

1] Modified 11-JAN-2009 PUBLISHED In this Document Goal Solution Type HOWTO Status

Applies to:
Oracle Purchasing - Version: 11.5 to 11.5.10 Information in this document applies to any platform.

Goal
What are the basic steps involved in setting up and transacting consigned orders ?

Solution
First a quick overview on consignment : What is consignment ? Consignment is a business practice whereby the supplier and buying organization agree that items will be delivered to the buying organization but the supplier will not send an invoice (and thus no payment will be made) until the items have actually been consumed. Consumption normally occurs when the items are used up in WIP or are sold by the buying organization but other scenarios are possible. When consigned goods are received, the normal accounting transactions are NOT effected. From a business perspective this means that the supplier is temporarily storing these goods in the buying organizations warehouse. The suppliers liability is not affected and the buying organizations material asset accounts are also not affected until the items are consumed. At this point, the normal accounting transactions are fired as if the items were received at the time of consumption. Currently, Purchasing does not allow encumbrance and consignment to be active at the same time (they are mutually exclusive in the same Operating Unit) Please note that VMI (Vendor Managed Inventory) is not covered in this document. From the Oracle Inventory Consigned Inventory from Supplier Process Guide : Consigned Inventory from Supplier exists when inventory is in the possession of one party (a dealer, agent, distributor, and so on), but remains the property of another party (such as the manufacturer or primary contractor) by mutual agreement. Consigned inventory from Supplier refers to one type of consigned inventory practice where you receive and maintain goods belonging to one or more of your suppliers. What setup is required for a consignment cycle ? Very little setup is actually required to do a consignment cycle and it is almost identical to the setup required for automatic sourcing using ASL. The steps are described below : Please note that these screen shots are from Oracle Internal Test Instance (Visprc01) and you can use this data for your own test cases. 1 Create an Item Nothing special here, just make sure that the item is stockable and purchasable.

Assign the Item to the inventory organization we will use for receiving. 2 Define and assign a Sourcing Rule for this Item Create a Sourcing Rule specifying Both a Supplier and Supplier Site. Make sure the supplier site is a valid purchasing site.

Now assign this sourcing rule to the Default assignment set (as specified in MRP: Default Sourcing Assignment Set). In this case it is the Supplier Scheduling Assignment Set

3 Create a Blanket Agreement (ASL source document) Create a normal Blanket Agreement specifying pricing for this Item as appropriate. Take care that the supplier and supplier site used here must be the same as those in the sourcing rule and ASL.

Save and Approve this Blanket Agreement and make sure the status is now approved. 4 Create ASL entry

Take care that you MUST specify a supplier site here otherwise you will not be able to enable consignment for this ASL entry. Also ensure that the supplier and supplier site used here are the same as those in the Blanket Agreement and Sourcing Rule.

Specify the Blanket Agreement number. If you are unable to select the Blanket Agreement you have created here please check for the following : A The Blanket Agreement is not approved B The Supplier/Supplier Site combination on the Blanket Agreement is not the same as on the ASL entry C The Item on the Blanket Agreement is not the same as on the ASL entry Now click on the Inventory tab. This is the part of the setup that is different from automatic sourcing.

Make sure to check the Consigned from Supplier check box. This is the most important part of the setup. 5 A quick test To test that our setup has been done correctly, create a new Requisition and specify the Item.

The Supplier and Supplier Site should automatically default as per the defined Sourcing Rule. Now open the Source Details tab.

Check that the Source Blanket Agreement has defaulted correctly as per the Approved Supplier List entry. If you get these results then the setup is correct and you can begin the cycle, otherwise, please review the above setup again. What are the steps involved in the consignment cycle ? The steps involved to purchase and receive (and consume) consigned goods are almost identical to those in the normal purchasing-receiving cycle. The main difference is the accounting side which does not take effect until the goods are consumed. The process is described below : 1 Create a standard PO Even though we have created a Blanket Agreement as the source document, consignment requires a PO (and not a Release) to begin the cycle.

Obviously the PO should contain the same Item, Supplier and Supplier Site as those in the Blanket Agreement, Sourcing Rule and ASL.

Save the document and then click on the More tab in the Shipments form and then scroll to the right. If you have done everything correctly, you should see that the Consigned flag is checked as shown below :

Approve the PO. Please note that no accounting is expected at this point since encumbrance is disabled (Encumbrance is not compatible with consignment). 2 Receive the Goods Receive the goods in the destination inventory (V1 in this case). Note that I have used Direct Delivery routing to bypass receiving transactions after receipt. Specify an appropriate subinventory.

Save the receipt. The goods are now in the specified subinventory. If this was a normal PO, the appropriate accounting transaction would have been created (Dr Receiving Area account / Cr Inventory AP Accrual account). However, since this is a consigned PO, we do not expect any accounting transaction to have been created. To check this, navigate to Inventory Responsibility->Transactions->Material Transactions form and query the Item.

If you click on the distributions button, you will see that no accounting transactions have been created yet for this receipt. This is because the receipt is flagged as a consigned receipt at the time of creation (since it is against a consigned shipment) and thus no accounting is created. 3 Convert consigned goods to regular goods Consigned stock is automatically converted to regular stock when certain inventory transactions take place (e.g. shipping), however there is an inventory process that allows consigned stock to be transferred to regular stock (and vice versa). Once consigned stock has been converted to regular stock, the receipt accounting transactions are generated. To transfer consigned stock to regular stock navigate to Inventory Responsibility->Transactions->Consigned Transactions

Select Transfer to Regular and click the Transaction Lines button.

Once you specify the Item and Subinventory, the system will check the available and on-hand consigned stock in this subinventory. If you have received the goods correctly then there will be consigned stock which is eligible for transfer to regular stock. Once this transaction is saved, the item is now regular stock. If you try to create a new transaction the consigned stock will have decreased and if there is no consigned stock left, you will not be able to complete this transaction. Let us now check that the appropriate accounting transaction has been created. Navigate to Inventory Responsibility->Transactions->Material Transactions form and query the Item.

Selecting the top line (transfer to regular, quantity=1) and clicking the Distributions button brings up the following :

The normal receiving accounting transactions have been created once the stock was transferred to regular stock. Goods can also be automatically transferred to regular stock through other means. From the Oracle Inventory Consigned Inventory from Supplier Process Guide : The system automatically generates a Transfer to Regular transaction whenever consumption takes place. Consumption transactions are performed either explicitly or implicitly. Explicit consumption is performed whenever the user specifies the external owning party (the consignor) whose goods will be transferred to the internal organization. Explicit consumption is performed by using the consigned transactions window and performing a transfer to regular transaction, or for example, by performing a miscellaneous issue and indicating the owning party in the transaction line. Implicit consumption refers to any type of consumption in which the system automatically determines that consumption is necessary, and selects the owning parties whose stock will be used up to complete the required transaction. Some transactions always consume consigned materials. These transactions include the following: Sales Order issues

WIP issues Inter-organization transfers Miscellaneous issues Other transactions can be set up to consume according to rules in the Consumption Transaction Setup windowlocated in Oracle Inventory. These transactions include Subinventory Transfers, Move Orders, Backflush Transfers, and others. What happens after Receiving and Consuming Goods ? Once the goods have been consumed, the quantities consumed should be communicated to the supplier to provide the necessary information for billing. This is done through the Consumption Advice document. Please refer to Note 271923.1 for information on running the Consignment Consumption Advise Report The normal invoicing and payment cycles and cycle can take place once the supplier has sent the invoice, with the only difference being that invoices are matched to the consumption advice rather than the receipt.

For Inventory related information on Consigned goods, please refer to Note 406390.1 For more information on Consignment, please refer to Oracle Inventory Consigned Inventory from Supplier Process Guide

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Related Products Oracle E-Business Suite > Procurement > Procurement > Oracle Purchasing

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